CONTRACT MANAGEMENT

WHY DO YOU NEED TO PROPERLY DRAFT A CONTRACT?

YOUR BUSINESS DEPENDS ON IT.

©2015, Atty. Jericho B. del Puerto. All rights reserved. For permissions to use this material, send a request to this e-mail address: info@jdpconsulting.ph

JDPCONSULTING

”

“Business transactions depend on contracts.

- Atty. Jericho B. Del Puerto

Business Lawyer & Legal ConsultantJDP Consulting Ltd. Co.

Business Law ProfessorSan Beda Graduate School of Business

Book Author, Legal Aspects of BusinessCentral Books Publishing

JDPCONSULTING

JDPCONSULTING

www.jdpconsulting.ph

What is a contract?

A contract is a meeting of the minds.

JDPCONSULTING

What are the requirements of a contract?

Generally, a contract has essentially three requisites:

consent, object, and consideration.When these requisites are present, a contract is perfected.

A perfected contract creates rights and obligations on the parties.

JDPCONSULTING

WHAT ARE THESE 3 REQUIREMENTS?

CONSENT

Consent is manifested by the meeting of the offer and the acceptance thereof including the cause behind the contract.

OBJECT

Object includes all things which are within the commerce of men.

CONSIDERATION

Consideration is that cause which have moved a party to entering into an agreement.

JDPCONSULTING

Are contracts required to be in writing?

No, contracts are generally consensual.

Mere consent perfects a consensual contract. By way of exception, the law requires certain contracts to be in writing (formal

contracts) and sometimes even requires it to be in a public document (notarized). Consensual contracts: consent, object, consideration (3 requisites)

Formal contracts: 3 requisites + in writing Public document: 3 requisites + in writing + notarized

JDPCONSULTING

WHAT ARE EXAMPLES OF THESE CONTRACTS?

CONSENSUAL

Employment contract

Sales contract of movables or personal properties

Agency contract w/o SPA

IN WRITING

Agency Contract requiring SPA

Insurance policy Warranty

agreement Lease contract

exceeding 6 months

PUBLIC DOCUMENT

Sales contract of real properties

Deed of donation of real properties

Mortgage of real properties

JDPCONSULTING

What happens if a contract required to be in writing or in a public document is not followed?

These defective contracts are either void or unenforceable.

Void or unenforceable contracts cannot be enforced. For void contracts, no rights and obligations were created for or against the parties to

the agreement. With unenforceable contracts, parties cannot go to court.

JDPCONSULTING

WARNING:Statute of Frauds

Unwritten contracts covered by the Statute of Frauds are unenforceable even if they are valid.

While contracts are generally consensual requiring only consent, there are instances when they are not enforceable due to the Statute of Frauds.

JDPCONSULTING

What is the Statute of Frauds?

The rule makes certain consensual and unwritten contracts unenforceable even if valid. It is designed to protect against fraud.The Statute of Frauds in effect encourages the parties to place their agreements in

writing in order for them to be enforced.

JDPCONSULTING

STATUTE OF FRAUDS: UNENFORCEABLE CONTRACTS+1 YR OBLIGATION

An agreement that by its terms is not to be performed within a year from the making thereof

GUARANTY/SURETY

A special promise to answer for the debt, default, or miscarriage of another

MARRIAGE DONATION

An agreement made in consideration of marriage, other than a mutual promise to marry

JDPCONSULTING

STATUTE OF FRAUDS: UNENFORCEABLE CONTRACTS

> P500 SALE

Sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless partially paid (auctioneer sales book sufficient)

+1 YR LEASE

An agreement of the leasing for a longer period than one year

SALE OF REAL PROPERTY

Sale of real property or of an interest therein

CREDIT REPRESENTATION

A representation as to the credit of a third person

JDPCONSULTING

What are the different status of a contract?

There are 5 status of a contract:

valid, rescissible, unenforceable, voidable, voidAside from the valid and rescissible contracts, the other status relates to a defect in the

contract entered into by the parties.

JDPCONSULTING

WHAT IS A VALID CONTRACT?

A valid contract is one that complies with all the legal requirements.

If a contract is consensual, then the simple agreement thereto will suffice. If you go to the mall, almost everything that you buy does not require a written agreement for the sales transaction.

However, you have to follow the law if a contract is required to be in writing. If you are selling insurance, it is required that the insurance policy be in writing to have a valid contract of insurance.

In case you are dealing with real property, take note that generally a public instrument is required for these transactions. Consequently, ensure that you have your deed of sale or other contracts properly notarized to be valid.

JDPCONSULTING

WHAT IS A RESCISSIBLE CONTRACT?

A rescissible contract is a valid contract that may be terminated due to a party’s non-compliance with the agreement:(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than 1/4 of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

(5) Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected; and

(6) All other contracts specially declared by law to be subject to rescission.

JDPCONSULTING

WHAT IS AN UNENFORCEABLE CONTRACT?

An unenforceable contract is one wherein one/both contracting parties are unauthorized to enter into an agreement, including those under the Statute of Frauds:(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;

(2) Those under the Statute of Frauds (shown earlier).

NB: At this juncture, it should be emphasized that the lack of authority of a company representative renders the contract void, not unenforceable, as the Corporation Code specifically vests corporate powers on the board of directors who represent the shareholders.

JDPCONSULTING

WHAT IS A VOIDABLE CONTRACT?

A voidable contract is one wherein there is a defective consent: (1) Those where one of the parties is incapable of giving consent to a contract; and

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

NB: Damage to a contracting party is not required.

JDPCONSULTING

WHAT IS A VOID CONTRACT?

A void contract is one wherein at least one of the essential requisites are missing: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; and

(7) Those expressly prohibited or declared void by law.

JDPCONSULTING

What is the importance of learning contracts?

Breach of contract results in liabilities and damages. Entrepreneurs and professional managers may even be personally liable.

Contract management skills is, thus, important to successfully run, operate, and manage a business away from liabilities.

JDPCONSULTING

How do you avoid such liabilities?

Management should observe best legal practices to avoid such consequences and liabilities.

Best legal practices are best practices with legal compliance. For contracts, they are sourced from contract laws, rules, principles, jurisprudence, and best practices.

JDPCONSULTING

WHAT ARE THESE BEST LEGAL PRACTICES?

Ensure that the essential requisites of a contract should be complied with.Consensual contracts: consent, object, and consideration (3 requisites)Formal contracts: 3 requisites + in writingPublic documents: 3 requisites + in writing + notarized

Put agreements in writing whenever practicable.Document contract negotiation to establish intent.Keep it simple and short.

JDPCONSULTING

”

“Defective contracts may result in non-acquisition of a right or obligation.

- Atty. Jericho B. Del Puerto

Business Lawyer & Legal ConsultantJDP Consulting Ltd. Co.

Business Law ProfessorSan Beda Graduate School of Business

Book Author, Legal Aspects of BusinessCentral Books Publishing

You may also want to visit:

www.legalaspects.phBusiness Laws & Best Legal Practices

JDPCONSULTING